Swiss central bank eyes GDP

The Swiss franc has posted slight gains on Thursday. In the North American session, USD/CHF is currently trading at 0.8829, up 0.12% on the day. With US financial markets closed for the Thanksgiving holiday, we’re unlikely to see much movement from USD/CHF today.

Switzerland wraps up the week with third-quarter GDP on Friday. The market estimate stands at 0.4% q/q, compared to 0.7% in the second quarter. The strong growth in Q2 was driven by increases in the services and manufacturing sectors. However, net trade pushed GDP lower as both exports and imports declined in the second quarter.

The markets have fully priced in a rate cut at the Swiss National Bank’s next meeting on Dec. 12, with a 72% probability of a 25-basis point cut and a 28% chance of a jumbo 50-bp cut. A surprise GDP reading could shift these odds.

Swiss National Bank poised to cut rates

The SNB will be keeping a close eye on the November inflation report on Dec. 3. Inflation declined by 0.1% m/m in October, the third straight month in which inflation failed to show a gain. If inflation is within expectations, it should cement a 25-bp cut. However, a softer-than-expected reading would likely raise the odds of a 50-bp cut.

SNB Governor Martin Schlegel has stated that the central bank would reintroduce negative interest rates if necessary, although he acknowledged that “the SNB does not love negative rates”. The SNB has used negative rates in order to dampen the Swiss franc and make Swiss exports less expensive. The Trump election victory has intensified political and economic uncertainty, which could push the safe-haven Swiss franc higher, putting pressure on the SNB to continue cutting rates.

USD/CHF Technical

• USD/CHF is testing resistance at 0.8863. Above, there is resistance at 0.8907
• 0.8787 and 0.8755 are providing support

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